WARSAW (Reuters) – Polish central banker Eryk Lon said he hopes there will be no need for further easing of monetary policy to support the Polish economy against the negative impact of the coronavirus pandemic.
The central bank has cut rates twice in the space of a month to support the economy, which has largely shut down as part of measures to halt the spread of the novel coronavirus, with the benchmark rate now at 0.5% – a historically low level.
Lon is one of the most dovish members of the MPC and has many times put forward motions for interest rate cuts.
“The scale of this year’s interest rate cuts was significant and I hope that further reductions will no longer be needed,” he wrote in response to Reuters’ questions.
“The level of both nominal and real interest rates, both against the background of historical data and in relation to the level of real interest rates in other countries is already very low,” he added.
If the need for another rate cut arose, the central bank should not hesistate, Lon wrote, although hoped there would be no tightening of policy beyond that.
“Negative interest rates are generally an extraordinary instrument. However, the real situation in the Polish economy will have to be monitored. I hope that there will be no need to reach for such drastic methods,” he said.
NON-STANDARD TOOLS
Poland’s central bank has also introduced other, non-standard, monetary policy instruments in its stimulus plan, according to which it will continue delivering liquidity to banks by buying treasury bonds from them, as well as other state-guaranteed debt.
“I think that the (central bank) could use the purchase of assets, including corporate bonds, as well as shares of Polish companies listed on the Warsaw Stock Exchange,” Lon said.
“In the latter case, it would be important to prevent the takeover of domestic enterprises by foreign capital using this instrument,” he added.
Lon said there is a threat of a return to deflation, although he hopes that the actions taken will give a chance that inflation will return to within the target range this year.